According to Jahangir Aziz, head of emerging market economics at JP Morgan, the Indian economy is likely to experience a deceleration in the second half of the year due to the global economic slowdown. However, he views this slowdown as a positive development, as it is necessary to maintain macroeconomic and financial stability. Aziz made these remarks in an interview with the ICCBizNews.
According to Aziz's statements to ICCBizNews, their perspective is that growth in the second half of the year is expected to decelerate. While this might appear unusual, a certain degree of growth slowdown is necessary to maintain macroeconomic and financial stability.
He further explained that much of India's recent growth has been driven by exports, particularly in the services sector. Consequently, as the global economy experiences a slowdown, including the US potentially entering a modest recession, India's growth will also be impacted. However, Aziz believes that macroeconomic stability should remain intact due to India's substantial foreign exchange reserves and the government's adherence to its fiscal deficit target.
Aziz emphasized that the aggressive monetary tightening has not caused significant harm to consumption and investment, which suggests that the US Federal Reserve might need to increase interest rates further.
Regarding India, Aziz stated that the decline in inflation, resulting from the economic slowdown in the second half of the year, would create an opportunity for the RBI to reduce interest rates.
However, Aziz clarified that this is unlikely to mark the beginning of an extended period of easing, but there might be some easing measures starting in the fourth quarter of the calendar year.
Regarding the El Nino risk, Aziz expressed confidence that India can handle any minor impact on food inflation due to sufficient food stocks from last year and improvements in food management.
Aziz stated that India is well-prepared to handle any minor impact on food inflation caused by El Nino, thanks to the sufficient food stocks from last year and improvements in food management.
He also mentioned that if the shock from El Nino remains
moderate, there are adequate revenue and expenditure buffers to maintain this
year's budget target and overall public sector borrowing at 10 percent of GDP.
Achieving these figures should be feasible unless a significantly adverse event
occurs, according to Aziz.
